The Law on Value Added Tax (2003) stipulates a standard VAT rate of 20% (since July 2009). A reduced rate is 9% (since July 2009) of the taxable value and it includes printed books, workbooks used as learning materials, printed newspapers, magazines and other periodical publications excluding publications mainly containing advertisements or personal announcements, or publications the content of which is mainly erotic or pornographic. Since April 2020, VAT on e-books is equal with printed books (9%).
In Estonia since 2000, the Income Tax Act includes provisions for both individuals and companies. Taxable income for residents includes income from employment (such as salaries, wages and other remuneration), personal business income, interest, royalties, rental income, capital gains, pensions and scholarships except scholarships financed from state budget, paid on the basis of law or Cultural Endowment.
Non-residents pay income tax on their income from Estonian sources. Income taxable in Estonia includes, subject to certain conditions, income from employment or government services provided in Estonia, and royalties. Income of a sportsman or an artist from his activities in Estonia is subject to income tax in Estonia for 10% or as it is agreed in the bilateral tax-contract between Estonia and resident country.
Income tax rate for residents on royalties is 20% and for non-residents 10%.
In Estonia, companies’ profits are not subject to tax when they are earned, but the moment of taxation is deferred until the distribution of profits. According to the Income Tax Act § 11, the Tax and Customs Board holds the list of non-profit associations, foundations (including cultural and educational) and religious associations benefiting from income tax incentives. An NGO, foundation or religious association (hereinafter association) which meets the following requirements shall be entered in the list:
- the association operates in the public interest;
- the association operates for charitable purposes, offering goods, services or other benefits primarily free of charge or in another non-revenue seeking or publicly accessible manner;
- the association does not distribute its assets or income, grant monetarily appraisable benefits to its founders, members, members of the management or controlling body, persons who have made a donation to the association during the last twelve months or to the members of the management or controlling body;
- upon dissolution of the association, the assets remaining after satisfaction of the claims of the creditors shall be transferred to an association entered in the tax incentives list or to a legal person in public law;
- the administrative expenses of the association correspond to the character of its activity and the objectives set out in its articles of association;
- the remuneration paid to the employees and members of the management or control body of the association does not exceed the amount of remuneration normally paid for similar work in the business sector.
Inscription on the list of associations (the total of such NGOs and foundations was ca 2 500 in January 2020) benefiting from income tax incentives shall give the association an opportunity to receive income tax incentives from donations and gifts (from business companies who otherwise have to pay 20% income tax), and pay scholarships and grants exempt from income tax under certain conditions.
The legal persons may give tax-free gifts and donations to such associations entered in the list within certain tax exemption limits:
- 3% incrementally of the total of payments that include individually registered social tax from the beginning of the calendar year, or
- 10% of the taxpayer’s profit of the last fiscal year ending on 1st January of the calendar year.
Certified gifts and donations can be deducted from a natural person’s income, if these are made to the person entered into such list of non-profit associations, foundations and religious associations benefiting from income tax incentives. A natural person taxpayer may deduct gifts and donations (together with in the total amount of EUR 1 200 but not more than 50% of the taxpayer’s income during the year of taxation).
The ruling Minister of Culture has made a political statement in January 2020 that he plans to amend the Income Tax Act so that the income tax exemption also extends to donations to the Cultural Endowment. Currently, companies pay 20% income tax on the amounts they donate to the Cultural Endowment, and as a result, there are virtually no donations of that kind to the Cultural Endowment.
Employers pay social tax on payments to natural persons, which is 33%.
Gambling tax paid into the state budget is divided as follows: 47,8% shall be transferred to the Cultural Endowment of Estonia; 12.7% shall be allocated for regional investment aid programme; 10,1% for projects related to science, education, children and young people; 15,3% for projects related to families, medicine, welfare, elderly persons, disabled persons and people with gambling addiction; and 14,1% for projects related to culture, sports and Olympic preparation.